Yesterday, a WTO panel came out against Argentina by ruling that certain domestic instruments undertaken by the nation restricted EU goods from competing fairly in the domestic Argentine market, including measures the Advanced Sworn Import Declaration (ASID), which required foriegn firms to secure approval by the Argentine authorities before importing goods. The same provides an interesting perspective into the North-South divide, which is always an underlying theme in a dispute brought to the doors of the WTO. [Professor B.S. Chimni’s compelling article on the same can be accessed here. A separate, interesting set of views on new age “inclusive” development was presented by Project Syndicate recently and can be found here. If you’re one for maps and colours like me, you’ll find this particularly fascinating. ] In fact, this dispute shows how developing nations often find it difficult to manage international trade, especially if it is conducted on a massive, macro level and how this gives the developed side a one-up when discussions on trade policy are brought to the WTO platform. On receiving news about the decision, the Brussels based European Commission came out with a press release applauding the decision and hailed it as a major step in reducing unfair protectionism in international trade. For added flair, the EU Trade Commissioner, Karel De Gucht chipped in the following:

‘I’ve made standing up to protectionism one of the hallmarks of my term as EU Trade Commissioner. This case sends an important signal that protectionism is not acceptable. I call on Argentina to move quickly to comply with the ruling of the WTO panel and remove these illegal measures, and open the way for EU goods to compete fairly on the Argentinian market.’

Notice the extra emphasis on protectionism. This statement very aptly displays what the understanding of the West is, with respect to the central purpose and aim of the WTO; avoiding a situation where their goods are unable to enter and compete in the markets of developing nations. It seems that any concession, even on “policy lines”, is not acceptable to the developed world. A clearer picture emerges when you look at the reasoning provided by Argentina for it’s protectionism. Surely a country would have a rationale basis for putting up restrictive barriers, knowing that in its quest for shielding domestic industries, it is throwing away a chance to acquire potentially beneficial business opportunities from abroad. Sometimes the justification of “infant industries” just doesn’t cut it because it is very conceivable that these very business opportunities may actually solve the problem of a static , or in some situations, slowly-moving economy. Surely there’s something more to it.

Argentina provides a fine answer to this inquiry of what else do developing nations do to “stroke the ire” of the developed world. While the same EU release accepted that these measures arose out of Argentina’s need to “manage” its strategy regarding international trade, wherein the heavy burden of its trade deficit was sought to be countered by substituting imports for locally-sourced products, it is interesting to note that this is nothing new for the South-American nation. Not only is the population in a strange robot-like calm despite living in a nation with the second-highest rate of inflation in the world after Venezuela, the top leadership seems to be a bit confused regarding the current status quo of the Federal Republic’s economic front. While Argentina’s president, Cristina Fernández de Kirchner continues to insist that the country has not recently defaulted on its sovereign debt for the second time in 13 years and her chief finance minister, Axel Kicillof, accuses all those who think otherwise of dealing in “atomic nonsense”, experts in this field present a completely different view. The Guardian quotes researchers from the National University of General Sarmiento as saying, “We’re in default all right, leaving all the legal minutiae aside, our access to credit is null (as of) today. The markets have corroborated it.”

In response to the commotion the Argentine president, the nation’s first woman re-elect, unveiled legislation that seeks to push bondholders to swap defaulted debt for new notes governed by Argentine law. The move is seen to be aimed at skirting a US ruling that prevented her government from paying its creditors. The nation slid into a debit crisis last month after a New York court blocked an interest payment of $539m (€406m) owed to holders of debt issued under US legislation that was restructured after the country’s 2002 default. U.S. District Judge Thomas Griesa, the judicial officer in charge, said that Argentina could not proceed with that payment until it had also settled on repayment terms with a group of hedge funds that had rejected the restructuring deal and were demanding full payment. While it is not immediately clear whether this maneuver could succeed in sidestepping the US court’s rulings, at present one can only speculate the impact it might have on the country’s default status which has in the past strained it’s relationship with the West, particularly the United States. To this extent, attorney Robert A. Cohen on behalf of the U.S. bondholders wanted the court to hold Argentina in contempt, saying that a finding of contempt would send a stern message to top Argentine officials as well as to any financial institutions that might want to help Argentina avoid its obligations to U.S. bondholders. On the other hand, Attorney Carmine Boccuzzi, representing Argentina, said a contempt finding would be premature and unadvisable. Though the judge has currently passed on such a finding, if Argentina goes through with a plan to replace foreign bonds with new local issues to side-step Griesa, the judge is likely to find the nation in contempt.

The WTO’s ruling displays that even on the international context, Argentina seems to be out of support because of the understanding that a nation cannot apply domestic policy by ignoring its obligations under the WTO. The measures, including requirements to offset the value of imports into Argentina with at least their equivalent in exports or to necessarily invest in Argentina, imposed a severe burden on importers of EU products into Argentina and also impaired the capacity of foreign firms to operate in the country. German premium carmaker Porsche was actually forced to commit to purchasing Argentine wine and olive oil in order to export some 100 of its cars to the Latin American nation. Other troublesome measures included regulations limiting import volumes as well as government rules linking potential shipments from abroad to promises of investments in Argentina and pledges from importers not to repatriate their profits. Local content requirement clauses were also a part of the issue (my bit on India’s problems with such requirements can be found here and here). In all, it seems that it is time for the Argentine leadership to wake up and smell the coffee. Refusing to accept the situation is not in anyones interest and a practice of immediate action is required.